Demographic drivers in the Americas will reduce undocumented immigration and wage inequality in the US

Gordon Hanson, Chen Liu, Craig McIntosh04 October 2017

Rising inequality and stagnating manufacturing wages have many in the Western world questioning whether immigration may be responsible. This column takes a close look at data for the US, and reveals that tighter immigration controls are unlikely to improve the fortunes of low-skilled workers. Long-term demographic changes in the Americas imply that the pressure from illegal immigrants on US labour markets is already abating and will continue to do so.

Over the decades leading up to the Great Recession, illegal immigration was indeed a potent driver of growth in the aggregate supply of unskilled labour in the US. The Pew Research Center estimates that between 1990 and 2007, the US population of undocumented residents – which as of 2013 accounted for nearly two-thirds of the US foreign-born adult population with 12 or fewer years of schooling – had an annual average net growth of 510,000 individuals (Borjas 2016, Passel and Cohn 2016). These inflows contributed to a sizable increase in the US supply of low-skilled foreign-born workers (Figure 1). Over the 1990 to 2007 period, the number of working-age immigrants with 12 or fewer years of schooling more than doubled, rising from 8.5 million to 17.8 million individuals.

The decade since the Great Recession has seen this substantial cross-border flow of labour stall out. The undocumented population declined in absolute terms between 2007 and 2014, falling by an annual average of 160,000 individuals, while the overall population of low-skilled immigrants of working age remained stable. Net migration between Mexico and the US from 2010 to 2015 was -141,000 (Gonzalez-Barrera 2015), meaning that roughly 25,000 more Mexican-born individuals were leaving the US than entering it per year.

Figure 1 Foreign-born workers in the US

While the proximate causes of the drop in net migration were economic crises and a ramp-up in border enforcement, these have coincided with a deeper and more permanent source of change, namely, a dramatic fall in fertility rates in Mexico and much of Central America. Our recent work has documented the extent to which differential growth in labour supply, arising from rapid population growth in the developing world, serves as a push factor for the international migration of unskilled labour (Hanson and McIntosh 2009, 2010, 2012). For decades, the Mexico-US border has been a relatively permeable barrier between regions with sharply divergent population growth rates. Consequently, the US has absorbed a substantial share of the labour force growth that occurred in Mexico and Central America between 1980 and the Great Recession.

Now, the sharp decline in population growth in these countries is generating labour force growth rates that are similar across the Americas. The total fertility rate in Mexico was seven in 1965, which then plummeted over the next several decades, dropping to 2.5 by 2000, close to the US level of 2.1 (Tuiran et al. 2002). This means that in the past decade, a major demographic driver of unskilled immigration to the US has effectively switched into neutral. These demographic changes are likely to have substantial impacts on the relative scarcity of unskilled to skilled labour, regardless of which immigration policy the US pursues on its border. In combination with border enforcement that appears unlikely to weaken in the near future, even a return to robust labour demand growth in the US seems incapable of causing undocumented immigration to approach its pre-recession levels. The policy dilemma facing the US in the future is thus not so much about how to arrest massive increases in the supply of foreign labour, but rather how to prepare for a future with less low-skilled immigration.

What will be the repercussions of changes in immigration pressures for the US? First, a source of downward pressure on the wages of low-skilled Americans is being reduced. Our estimates suggest that the immigration-induced slowdown in the growth of the unskilled labour force decreased the 2015 skill-based wage gap in US labour markets by 6-9%, relative to what would have happened if unskilled labour force growth had continued from 2008 to 2015 at its prior trend.

The declines in the number of undocumented immigrants are likely to be particularly strong from countries such as Mexico that have seen the most rapid fertility declines. Central American countries, some of whose populations will continue to grow, will continue to have higher rates of net emigration. Because these countries are so small relative to the US, however, the effects of their emigration will not come close to duplicating the shock to US low-skilled labour supply represented by undocumented migration of Mexicans in previous decades (Figure 2).

The coming years will also see a dramatic ageing of the first-generation US immigrant population. Declining fertility rates in sending countries are coinciding with a drop in immigration among younger foreign-born cohorts, leading to a distribution of the foreign-born that is strongly centred on 40-year olds in 2015. Social policy issues around the provision of services to undocumented people in the US will shift from schools to elder care (including health care). Our prediction suggests that in 2040 there will be fewer Mexican-born 30 year olds than today, but three times the number of Mexican-born 65 year olds (Figure 3).

Figure 3 Age frequencies of Mexican-born in US, by year

Our demographic perspective on US inflows of foreign labour speaks directly to some of the most contentious debates currently raging over immigration. When it comes to further strengthening enforcement on the US-Mexico border, the net benefits of such investments are likely to be small when one considers the dramatically weakened pressures for immigration over the long haul.

Diminished long-term pressures for immigration also suggest that a major argument against amnesty for undocumented immigrants is weakening. The moral hazard generated by an increase in the perceived probability of future amnesty will drive foreign-born individuals to want to migrate. To the extent that illegal migration pressures are abating, the perverse effect of granting citizenship to immigrants currently in the country (such as ‘Dreamers’) may be modest.

Using the demographic lens to take a global, long-term perspective, some clear lessons emerge. As future global population growth moves to being dominated by Africa (see Figure 4a and 4b), the demographic pressures on migration move to the Mediterranean and the Persian Gulf. Countries such as Spain, Italy, and the UK that are highly exposed to African emigration will face particularly strong pressures for labour inflows. In European and Middle Eastern destinations, immigration policy will thus be increasingly salient and consequential.

It is also important to consider the demographic drivers of migration from the perspective of the origin countries. The possibility of emigration served as a critical safety valve for the burgeoning populations of Southern Europe and Ireland as they went through their own demographic transformations in previous centuries. Our earlier work shows that emigration to the US, Canada, the UK, and Spain was strongly driven by demographic growth in Latin America and the Caribbean during the latter half of the 20th century. Strikingly, this pattern does not hold at the global level. Countries with rapidly growing populations that lack the benefits of proximity or large established migrant populations already in OECD destinations see lower migration rates than more slowly growing countries. In Hanson and McIntosh (2016), we predict that the number of African-born first-generation migrants aged 15 to 64 outside of Sub-Saharan Africa will grow from 4.6 million to 13.4 million between 2010 and 2050. During this same period, the number of working-age adults born in the region will expand from under half a billion to more than 1.3 billion, meaning that international migration would only absorb 1% of the overall population growth. Given an African continent expected to contain almost 4 billion people by 2100, the absence of a migration safety valve would have profound implications.

While populists in the US may be fighting yesterday’s battles by focusing on border control, in Europe decisions over how and whether to combat illegal immigration will be a major driver of the international movement of low-skilled labour in the coming decades.